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Flat-rate hydro proposal stirs debate

A proposal to charge householders one flat rate for local hydro service — no matter how much electricity they use — raises concerns.

An electronic board on the main floor of the Manby transformer station; utilities say the cost of maintaining infrastructure doesn't go down as we use less power. (Andrew Francis Wallace/The Toronto Star)

It sounds like a simple idea: Pay your local hydro utility a fixed rate each month for its portion of the bill, no matter how much power you use.

But the proposal has attracted a blizzard of commentary from consumer, business and hydro industry groups since it was floated earlier this year by the Ontario Energy Board in a draft report.

And no one is yet rushing to embrace the idea, in submissions filed with the board..

Many, like the Consumers Council of Canada, warn that the idea faces challenges that are “significant, and some issues potentially insurmountable.”

Others warn that changing the rate system raises not only questions about how much customers should pay, but also about how much profit the local hydro utilities should be allowed to earn.

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The proposal focuses on smaller power users, including householders, and applies only to the portion of the bill that flows to the local hydro utility, which normally gets 20 to 25 per cent of the total payment.

Part of the local utility’s share is a flat fee, while part depends on how much power the customer uses.

The energy board’s suggestion is to make the entire charge a flat fee. It’s responding in part to the financial impact of energy conservation programs, which are decreasing the amount of electricity flowing over the utilities’ lines.

The lower volume of electricity reduces the local utilities’ revenue. But the utilities argue that the expense of building and maintaining their systems of wires, poles and transformers doesn’t decrease with the lower volumes.

There are different ways of setting a fixed rate. It could be simply a one-size-fits-all fee. It could be based on a customer’s peak usage. Or it could be based on the size of the customer’s connection to the system.

The Electricity Distributors Association, which represents the local hydros, says on balance it prefers the one-size-fits-all fee (although it would prefer to see some sub-categories created for “very large residences” and multi-residential buildings).

If bigger houses pay the same as smaller houses, the association says, it will lead to the perception that big energy users are getting a discount, and are being subsidized by low-volume users.

But the flat-fee system has the virtue of simplicity and stability, it says.

The association makes a final observation in its submission. It states that a flat-fee billing system will not change the business risk for utilities.

And that’s important, it says, because it means the rate of return that the energy board permits utilities to earn should not be reduced.

In the world of regulated utilities, lower business risk generally means the profit they’re permitted to earn gets reduced.

The risk-and-reward issue puts the utilities squarely at odds with the Canadian Manufacturers and Exporters.

The CME brief argues that the energy board shouldn’t implement any system of fixed rates until it completes a review of what return local utilities should be allowed to earn.

That’s a complex question. Many local hydros — including Toronto Hydro — are owned wholly or in part by municipalities, who benefit from those profits. And the biggest hydro company of all, Hydro One, is owned by the province.

The municipalities and the province earn healthy returns each year from those utilities.

The consumers’ council urges a go-slow approach to the whole issue, arguing that more study is needed on how the proposals might affect low-income consumers, or conservation programs.

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